10 Things You Need to Know Before Buying Your First Rental Home

Ready to jump into real estate investment and buy your first rental home?  The gyrations of the stock market in August/September 2015 certainly is bringing other forms of investing to the top of people’s minds.  Investing isn’t an “all-in” thing, or it shouldn’t be.  Diversification is the advice most stock market brokers give, but they’re just telling you to diversify among stocks, companies and industries.  They’re definitely not wanting you to take money out of the markets and move it into real estate.

I’m not suggesting that you dump all of your stocks and bond holdings to buy rental real estate, but let’s get into my Top 10 things to nail down in your life or think about before you take the leap.

Number 10:  During stock market corrections or crashes, rental property owners just sit back and collect rent checks.

When you put a rental single family home into service, you’re placing a tenant with rent carefully calculated to yield positive cash flow each month after all costs and the mortgage payment (called debt service in the biz).  A massive correction in the stock market doesn’t damage your property, and it doesn’t increase your ownership and management costs.  Well, maybe if your tenant is a stockbroker and jumps off a roof, but not likely.

You continue exactly as before any stock market gyrations, banking your positive cash flow each month and unless real estate also makes a correction, your investment’s value doesn’t change either.  You simply feel badly for your friends and neighbors who are seeing their portfolios drop dramatically.  Problems in August of 2015 with China wiped out the entire year’s gains in the Dow.  Ouch!

Number 9:  There is risk in every investment, including real estate.

I’m not suggesting that there isn’t risk in real estate rental property investment.  However, it’s different in many ways from the risk factors in stocks and bonds.  Let’s look at stock market risk factors for a minute:

• Market risk:  This is when the entire market drops for reasons not necessarily related to a single company’s performance, or even the performance of an entire industry.  The August 2015 corrections were related to problems in China, and they definitely took their toll.
• Company risk:  If you own stock in a company, there can be management or market problems that can take the stock down in value in a big way.  Even if it holds relatively stable, a long period without any rise in asset value isn’t fun either.
• Inflation risk:  If you’re managing an 8% annual return on your stocks, including dividends, it’s going to be heavily damaged if inflation rises to half that pace or higher.  
• Interest rate risk:  Higher costs of borrowing can damage a company’s ability to borrow and cause their stock price and dividends to suffer as well.  Whole industries that rely on borrowing can take a dive when interest rates increase.

As for bonds, here are some risks and points to remember:

• Returns on bonds are generally not very high, especially if you want some safety and less risk.  Government bonds pay a tiny rate compared to the growth you may be able to get in stocks.
• Inflation risk:  This is particularly damaging to the lower returns paid by bonds.
• Interest rate risk:  It is true that unless a company defaults, you’re going to get your entire investment back at bond maturity.  However, if you need to sell it before it matures, and if interest rates have risen, you’re not going to be able to sell it for what you would get if you held to maturity.

Rental property isn’t as damaged by inflation in many cases.  You see, if it costs more for labor and materials, then generally the cost to buy a home goes up, and your rental property’s value will go up as well.  As for interest rates, you should have a fixed rate mortgage, so you’re not too worried.

Number 8:  You need to study your market and the local economy.

Yes, there are full service rental property companies that do all of the work and simply sell you a home, sometimes with a new tenant installed.  If you take this route, it can be good for you.  However, anyone between you and the deal must get a return on their investment and make a profit.  So, you’ll be paying top dollar for the home, and you’ll have to hold it longer to get your money out of it after sales costs.

So, the better approach is to locate your own rental property deals and buy them either from a real estate investment wholesaler or a fix & flip investor.  They understand that a sharp rental home buyer wants to buy at a discount to current market value, so they structure their purchase, transaction costs, rehab costs and profit so that there is some discount left for you.  However, don’t rely on them to do your homework.  

Pay attention to the local economy.  Try to make sure that no major employers are planning on leaving or that there isn’t negative news or development issues that will depress home prices or cut the demand for rental homes.

Number 7:  Know your abilities, financial and time available.

You don’t need a lot of cash to invest in rental property, as you can leverage with a mortgage.  However, if you’re trying to get started with your car repair emergency money, it may be the wrong time to do it.  

To get the maximum return from a great purchase deal and tenant selection, you will need to put some time into this investment.  It’s not the same as calling a broker and placing a stock order.  If your family and current job commitments are extensive, you may want to pass up real estate right now.

Will you be able to handle the headaches of landlording?  Collecting late rents, eviction, and repair calls in the middle of the night are all part of the deal.  After you’re successful and you own multiple properties, you may hire professional management.  But, right now you will be doing it all.

Number 6:  Stick close to home.

This one is debated a lot.  Some of the very best deals these days are in cities like Detroit.  However, if you live in Oklahoma, trying to buy right and manage a rental property in a city far away is probably not the right path.  Later maybe, but not for your first. 

You want to invest if possible in your city so that you can drive by your investment a couple of times a month just to see how the exterior looks.  It’s also kind of nice to see your investment sitting there, unlike shares of stock sitting in your broker’s safe or on a computer somewhere.  You also can check out repairs and major issues and shop for the best service to correct problems.  Then you can check quality before paying the bill.

Number 5:  Know ALL of the costs.

Let’s forget for a moment about buying right or even setting rents.  Know that there are costs involved in rental property investment, some fixed and many variable.  Your mortgage is usually your highest cash flow out, and it won’t change if you got a fixed mortgage.

However, property taxes can change.  Unexpected repairs happen.  Advertising for new tenants is part of the deal.  And, you really need to understand that “vacancy cost” is one of the biggest damagers of profit.  If you lose a tenant and can’t fill the home again for two or three months, you could be in a negative cash flow position for the entire year.

Number 4:  Think about the tail end as much as the front end.

Many new rental property investors put a huge amount of effort into learning the ropes to cut a great discount deal on a property that will cash flow well.  Where they sometimes fall short is not thinking about when they sell the home; and you will.  

If you bought right at a discount, you’re still likely to have to hold the property for at least four to five years to be able to make a sale profit after holding costs and closing costs.  Try to buy in neighborhoods that have a history of above average value appreciation.  At least if your situation requires a sale sooner than expected, you want to walk away with a check, not write one at the closing table.

Number 3:  This is a competitive business.

Real estate investing has been booming ever since the real estate crash that began in 2007.  In fact, even the government has credited investors with helping markets and prices to stabilize by buying in quantity.

You can’t just sit back and wait for a real estate agent to bring you a deal.  That’s retail buying, and you want to buy at wholesale.  You need to be actively searching for deals everywhere you go, even driving around looking for FSBO, For Sale By Owner, properties.  Get educated and learn how to run the numbers and be ready to make a decision if the numbers work.  Because, if you see a deal, you can bet that one or more other investors are eyeing it as well.

Number 2:  This isn’t “get rich quick,” but it is get rich steadily.

The tax advantages of rental property are better than any enjoyed by stock market or bond investors.  Ask your accountant and they’ll likely verify that you will not have to pay tax on all of that great cash flow due to depreciation and deductions.

Building a portfolio of real estate and growing its value over time is made even easier by using the IRS 1031 Exchange Rule.  Talk to an accountant, as it’s complicated, but simply:  you can sell a rental property and roll all of your gain into another one without paying current capital gains taxes.  Keep rolling up to higher value properties, and you can build wealth with real estate on a grand scale.

NUMBER 1:  This ain’t rocket science; you CAN DO IT!

The information you need is available, and the money you need is flexible.  Really all you need is the desire and a careful nature.  Sure, you can be a big time real estate mogul someday, but today for your first deal be cautious and learn the ropes for success.$

[Ed. Note: Need additional income to help support or supplement your real estate business? Ray is offering a complete blueprint to helping you take control of your financial future with a web-based business that you can operate from anywhere in the world – including a coffee shop, your kitchen table, or anywhere around the world where there is Internet access. Discover how you can achieve the American Dream and your financial independence here. You’ve never seen anything like this before.]

Real Estate: Refrain From Taking The Get-Rich-Quick Approach

There is money to be made in real estate. If you are reading this, you are most likely aware of its massive potential. Many new investors only see the upside, but fail to see the steps needed to get to that point. One of the things that makes investing so great is that anyone can do it. There is no license or certificate needed to get started. Anyone can find a deal that they can knock out of the park. The key is knowing that this is the exception rather than the norm. If you look at the business with a get-rich-quick frame of mind, you will be out of it in no time. If you want to be part of the world of investing for the long term, you need to change your mentality. Here are some questions you need to ask yourself before you make any big business decision.

• Where do I want my business to be in one year? This sounds like a simple enough question, but many investors cannot answer it. Regardless if you are closing a deal a year or a deal a month, you need to have a plan. It is also important to treat your investing path like a business. If you only look for home runs on every deal, you will be waiting a long time. The best investors are those that hit singles throughout the year. Sure, there is the occasional grand slam, but this takes a perfect storm of things to happen. By focusing on where you want your business to be, it will help you make better decisions in the present.

• Is this going to set my business back? All it takes is one bad decision to change your business. There is risk in every deal. If the reward isn’t there, you need to move on. What most new investors don’t understand is that they can lose money if they are not careful. This usually isn’t the case with seasoned investors because they know all the risk associated with every deal. New investors that only look at the bottom line don’t see what it takes to get there. They end up taking chances on deals that are doomed to fail. If you do this enough times, you will miss out on the deals that can make real money. By constantly taking two steps back and one step forward, you will end up going nowhere.

• Will this hurt my reputation? Chasing the quick buck often leads to making poor decisions. If you love the business and want to stay in it for the long haul, you need to protect your reputation. In operating in the gray area, people will stay clear of your business. You may make money on one deal, but at what cost? People that know the business will not want to work with you again. You will lose the benefit of the doubt on offers and referrals. Your network and the people around you are the best source of leads you will find. If you damage your reputation to the point that nobody wants to work with you, your business will suffer. People like to work with  those that they feel comfortable with. By making decisions based only on closing the deal you are working on, you can bet they will not work with you again.

• Can I replicate this deal? The best deals often happen when you aren’t expecting them. It is no secret that the foreclosure and short sale market let to some great deals in past years. Many investors made large profits in these areas. One of the reasons for this was because they had built up contacts and had saved cash to take advantage of the market. What may be a great deal is usually the cultivation of months of hard work. Before you put all your eggs in one basket, it is important to ask yourself how many deals do you expect. If you got the deal you are working on from a friend of a friend, it is unrealistic to think this will happen again. This could be a home run deal, but not one that you can build your business around.

• What was your takeaway? Every deal you get involved in is a learning experience. Most investors are so occupied with the next deal that they fail to see it. The sooner you can evaluate what works and what doesn’t, the better investor you will be. It is important to take time before, during and after every deal to make notes throughout the process. In going from deal to deal, you are bound to repeat mistakes. You should be able to find thirty minutes a week to see what you can improve on. If you know what you did wrong, you decrease the chances that it will happen again.

With the right work ethic and frame of mind it is possible to be in the real estate business for years. There is no such thing as an overnight success. You can get lucky on a deal or two, but success takes years of hard work and education. Every investor experiences peaks and valleys with periods of time where the business is frustrating. If you make decisions about what’s best for the long haul, you will start seeing more deals fall on your lap.$

[Ed. Note: Need additional income to help support or supplement your real estate business? Ray is offering a complete blueprint to helping you take control of your financial future with a web-based business that you can operate from anywhere in the world – including a coffee shop, your kitchen table, or anywhere around the world where there is Internet access. Discover how you can achieve the American Dream and your financial independence here. You’ve never seen anything like this before.]

Are you giving Uncle Sam an interest-free loan? Why it may be time to adjust your W-4

If you find yourself strapped for cash during the year, yet you always receive a refund come tax time, it might be time to adjust your W-4 exemption. And with the holiday season right around the corner, who couldn’t use a little more cash in their pocket?

As of February 2015, the Internal Revenue Service reported that 50 million individual income tax returns had been filed for the 2014 tax year. Some 83 percent of those resulted in refunds averaging $3,120.

If you’re among those who received a sizable refund, you essentially gave Uncle Sam an interest-free loan last year, and — based on that $3,120 average — shorted your cash flow by approximately $260 a month.

Whether you’re having too much — or too little — withheld, the IRS offers a tool that can help you calculate the proper federal tax withholding.

You can also consult your tax preparer, or tax-preparation software packages like TurboTax to see what changing your W-4 would mean to your pocketbook year round, and at tax time.

Regardless of your current tax liability, there are 3 life changes that should always warrant an examination of your tax exemptions:

1. You gain, or lose, income: Whether you’ve added a second job, gotten a significant raise, or become unemployed, you’ll need to take stock of your exemptions. When your income increases, so does your tax liability. If you launch a home-based business or add a part-time job, it’s a good time to take stock of your exemptions. Conversely, if you spend a chunk of the year unemployed you may have had too much tax withheld. And when you rejoin the workforce you’ll need to account for downtime.

2. Your joint filing partner gets a new job: Any time household income changes, you could unwittingly enter a new tax bracket based on combined income figures. One filer can claim all of the allowances or they can be split between both.
3. You get married, divorced, or become a parent: Married, joint filers qualify for a lower tax rate and other standard deductions. A divorce means a return to single-filing status, which disqualifies you from a number of tax breaks. A new child, meantime, qualifies as a major tax event and qualifies you for the Child Tax Credit and Child Care Tax Credits, among others. These added tax benefits can allow you to reduce your withholdings.$

[Ed. Note: Ray Buckner’s personal team will create 10 six-figure earners before the year is over. Our system walks you through the process of growing your profitable online business using a proven online business model. Ray shows you exactly what he did to grow his six-figure business. To find out more about Empower Network, go here.]

Do You Have What It Takes to Succeed at Internet Marketing?

When you hear about all the folks who are making thousands of dollars a week in passive income by selling information products on the Internet… and “working” only a few hours a day…

… it’s tempting to want to jump on the bandwagon.

But before you take the leap, it pays to think about whether it is right for you.

On the surface, Internet information marketing sounds like everybody should be doing it. Of course, if that happened, who would fix your car… or trim your hedges… or prepare your tax returns?

But not everybody is going to go into Internet marketing — as tempting and attractive as it sounds.

Should you?

Let me start by saying that, as an Internet information marketer, what you will be selling is useful knowledge on a specialized topic. Therefore, if you already possess this specialized knowledge, you are in an advantageous position.

According to info marketer Gary North, most people do, in fact, have some specialized knowledge they can turn into a business.

“You possess a lot more knowledge than you think,” says Gary. “In many cases, that knowledge is valuable to those who don’t possess it.”

If it’s not immediately obvious to you what specialized knowledge you possess that other people would pay for, stop and take a personal inventory.

On a sheet of paper, list your formal education… degrees… job history… skills… hobbies… and interests. One or more of the items on that list most likely can be the basis of a blog that leas to a profitable Internet information marketing business.

Are you articulate? If you can express yourself well, that, too, positions you for success in the Internet information marketing business. You do not have to be a great writer. You just need the ability to express yourself clearly and concisely in a pleasing manner that people enjoy reading.

Another thing that gives you an advantage in this business is a strong desire to make more money than you are now making. That’s important, because there are a lot of people who publish online (blogs, articles, books, fiction) without caring if they make money by doing it.

These amateurs (and I am using the word in its literal meaning, not as a pejorative) post their stuff on the Web and give it away for free. Their reward is knowing that people are reading or looking at their work.

But putting up a website and posting content to it is easy. Getting people to pay you for it is a bit more of a challenge.

An interest in making money from your intellectual property will give you the impetus and motivation to do the extra work it takes to create and sell information products online. (We teach the entire process in our Empower Network Group business-building program.)

Have you studied copywriting? You do not need to be a good copywriter to have a successful Internet marketing business. But you do need the ability to know whether a promotion written for you by a freelance copywriter is any good, so you can tell the writer how you want it fixed.

If you are a good copywriter, that’s a bonus, because hiring top copywriters is expensive — and by writing your own sales copy, you can avoid their fees.

The key to success in Internet marketing is the marketing, not the content creation.

Quality content is important. But the people who make serious money online do so because they are good marketers, not because they are good writers.

Many people who love to write are enamored with the “creative” part of it, but aren’t good at the business side of things. If you go into Internet marketing, you will have to pay more attention to the business side. In particular, you need to know what you can realistically expect in terms of results from your promotions.

You do not need to have an aptitude for math. With Internet marketing, figuring out your return on investment (ROI) is very simple and can be done with a pocket calculator. But you do need to be conscious of revenue coming in and money going out. Starting and running an Internet marketing business does not cost a lot of money, but the cost is not zero.

The one thing you absolutely do not need is experience with computers or technical ability of any kind.

The most important skills for an Internet marketer are (1) marketing, (2) copywriting, and (3) communicating (the ability to create content in writing).

I advise Internet marketers to outsource all the technical tasks. That includes setting up their computer, installing their e-commerce software, broadcasting e-mail marketing messages, maintaining their subscriber list, and designing their information products and websites.

You can get people to handle all these tasks at dirt-cheap prices. On websites such as getresponse.com and buildingabrandonline.com, for example, you can find all the help you need at prices so low they will astonish you.

Even if you can do the technical stuff, I advise you not to.

Why?

Because with the limited number of hours you have available each day, you need to spend your time on tasks that give you a maximum return on time invested (ROTI).

The tasks with the highest ROTI revolve around thinking about your business and testing new products and marketing campaigns.

The technical stuff has the lowest ROTI. To be frank, it’s a waste of your valuable time. And the less efficient you are in running your Internet business, the more difficult it will be for you to achieve the “Internet marketing lifestyle” — making a six-figure passive income while working only a few hours a day.

So ask yourself:

• Do I have useful knowledge of a specialized topic that people will pay for?
• Can I express myself clearly in writing?
• Do I have a desire to earn more money from what I know?
• Can I develop some skill in copywriting?
• Do I understand the fundamentals of Internet marketing?

The more “yes” answers you gave, the better equipped you are to turn your knowledge into dollars.$

Join me and our successful mentors in Empower Network and I will show you how to do everything you need to do to make money online efficiently and effectively — as well as how to outsource the rest at bargain-basement prices.$

[Ed. Note: Ray's personal team will create 10 six-figure earners before the year is over. Our system walks you through the process of growing your profitable online business using a proven online business model. Ray shows you exactly what he did to grow his six-figure business. To find out more about Empower Network, go here.]

How to Escape the Biggest Destroyer of Wealth

Before I explain how to avoid the single biggest destroyer of wealth, there is one very simple—but very important—concept you need to understand.

It’s the law of uninterrupted compounding.

Compounding is a simple investment strategy in which you put your money in an investment that pays interest. At the end of the year, you take the interest you earned and reinvest it with your original stake.

Now your interest earns a return, as well.

The next year, you’ll get a bigger interest payment. Then, you’ll reinvest that payment, and so on…

A snowball is the best analogy for compounding. As you roll the ball through the snow, the surface area gets bigger. The more surface area on the snowball, the more snow it picks up.

The snowball gains mass slowly at first… but pretty soon, you can’t move it because it’s so huge.

Compounding is slow and boring at first. But gradually, the interest you earn grows, and your reinvestments increase.

And the longer you allow your money to compound uninterrupted, the more it grows.

The key to compounding is to let it work over many years.

The chart below shows the value of an account growing at 10% per year over 60 years. We call this the “hockey stick” chart, because the money grows slowly for several decades, then really picks up speed after about 40 years.

The Hockey Stick

If you don’t interrupt it, compounding produces a fortune.

At 10% interest, it takes 40 years for $10,000 to grow into $411,000 (see the red arrow).

That’s pretty good. But do you see what happens next? The growth of the account explodes.

By year 50, it’s grown to just over $1 million.

By year 60, it’s grown to more than $3 million.

In short, the power of compounding is most effective when you let it work over many decades.

Interrupting the Compounding Process

The compounding process works only if you don’t interrupt it… i.e., if you don’t pull money out of the account along the way.

The chart below shows what happens if you make an early withdrawal and pull $150,000 out of your account in year 40.

As you can see, first, the balance in your account drops. That’s the red line you see dipping below the black line.

Second, there’s less money in the account to produce interest. You’ve interrupted the compounding.

Look what it does to your wealth…

In year 50, you’ve got $713,000, instead of $1 million. And by year 60, you’re left with $2 million instead of $3 million.

Your account balance is $1 million less in year 60.

Interrupted Compounding

One small withdrawal causes your wealth to plummet.

30-, 40-, and 50-year periods are long. They’re hard for most people to fathom. But we use these time frames to illustrate one important point:

Interrupting the compounding process—by liquidating part or all of your funds—is the single biggest destroyer of wealth.

These interruptions are not always easy to spot.

For example, a 20% decline in the stock market interrupts the compounding process in your 401(k) account. That’s because your account balance dropped by 20%. And you have less money producing interest.

Or, you could cash out part of your 401(k) or IRA to buy a new car or house or to give a gift. That interrupts compounding as well.

Or, consider your child’s college fund. You start putting money into it when your child is born. It compounds and grows tax-free in a Coverdell account or 529 plan.

But when your child reaches college age, you liquidate the account to pay for tuition expenses. You’ve interrupted the compounding process after only 18 years.

The Holy Grail of Finance

You know leaving your money alone and letting it compound produces great wealth. But there’s one downside to this: You can’t touch or access your money for a long time. You’ll interrupt the compounding.

The holy grail of finance is a vehicle or account that relentlessly compounds your money. But at the same time, it lets you access your money without interrupting the compounding process.

Does such an account exist?

Dividend-paying whole life insurance—what we call “Income for Life”—offers us these exact benefits.

We put money in one of these policies, and it compounds for the rest of our lives.

We capture the power of uninterrupted compounding, and we get rich.

Pretty simple, right?

But what if we want to pay for a vacation? Or a car? Or college tuition? Wouldn’t that interrupt compounding?

If this money were in a bank account, a brokerage account, or a 401(k)… yes, it would. In order to pay for a big expense, you’d need to liquidate your savings account. Or sell your stocks. Or get rid of your mutual funds.

Doing this would free up your money for use. But, of course, the money is no longer working for you. You’ve interrupted the compounding process.

Actually, it’s worse than that: Not only have you stopped the power of compounding, you’ve decreased the value of your savings, stocks, or mutual funds. This double whammy results in a critical blow to your long-term returns.

I want to illustrate this visually for you. Below is a rough graphical representation of what most people do as they save—and then pay—for big-ticket expenses.

First, you save up, earning interest along the way. Those are the green lines.

Then, you liquidate your account to buy something… maybe a car. You save up. You liquidate. You always end up at zero.

Saving Up for Big Purchases

By paying cash for your big-ticket items, you interrupt the compounding process.

But with Income for Life, you can still pay for these things AND compound your money, uninterrupted.

How is this possible?

You save up money in your Income for Life policy. Then, at any given time, the insurance company lends you the money you need (up to the amount you’ve saved in your policy). And you pay it back to the insurance company at your own pace.

Remember, you can get these loans in under a week… without running your credit or filling out a 30-page application.

The insurance company is willing to do this because it has nothing to lose.

If you decide not to pay back the loan, the insurance company could simply deduct whatever you owe from your payout when you die.

In short, because of the policy’s loan feature and the guaranteed lending provision that comes with your Income for Life policy, if you need money, you can borrow it from the insurance company.

And because you use the company’s money, nothing interrupts the compounding of the money in your policy.

Remember our uninterrupted compounding chart from earlier? Here it is again.

The Hockey Stick

The path our money is taking in an Income for Life policy:

Let’s look at what happens when you use your Income for Life policy to buy something.

Remember, when you borrow from your Income for Life policy to make a purchase, you don’t liquidate your savings, your brokerage account, your IRA, or your college plan as you did with our earlier example. You take a policy loan from the insurance company and repay it over time.

Because you took out a loan and used the insurance company’s money, your money continued to compound and grow… uninterrupted.

Now, five years later, you’ve repaid your policy loan. But the cash-value balance in your policy is much higher because you let it compound uninterrupted.

By using a series of loans to pay for life’s big expenses, you will never interrupt the compounding process.

The illustration below shows how this process looks.

The black line is a close-up of the “hockey stick” compounding curve. The green dots represent points in time at which you might take policy loans. The green lines represent your shrinking loan balance each year as you pay back your loans.

The Path to Uninterrupted Compounding

Use policy loans to pay for your big-ticket items.

By borrowing money from the insurance company, you can continue compounding within your policy… even as you spend.

Recap

I’ve shown you how devastating the action of interrupting the compounding process is.

And I’ve shown you how the average person destroys his or her wealth by doing this many times throughout his or her life.

Bottom line: Income for Life is the only solution I know of that allows you to harness the power of uninterrupted compounding… while still letting you spend your money when you need it.$

[Ed. Note: Ray Buckner’s personal team will create 10 six-figure earners before the year is over. Our system walks you through the process of growing your profitable online business using a proven online business model. Ray shows you exactly what he did to grow his six-figure business. To find out more about Empower Network, go here.]

How To Build A Sustainable Real Estate Business

Even the best investors go through periods of ups and downs. As good as the business can be when things are going well, it can be equally frustrating when plans don’t fall into place accordingly. While you can never fully eliminate dips in business activity, there are ways that you can build a business to withstand market fluctuations while keeping an eye on the future. If you love the business and can see yourself in it five and ten years down the road, there are actions you should take right now to cement your place. After all, a sustainable real estate business should be the goal of every serious investor.

There will be times in your business when you face difficult decisions to do what’s best today instead of what will have a greater impact down the road. The decisions you make will have a lasting impact. Make sure they are the right ones. One of the best ways to build a strong business is by building a strong reputation. If you treat everyone in a deal with respect, regardless of the situation, people will take notice. Going the extra mile or doing something that is not really in your job description will make an impression on the people around you. When things are slow or if people in a deal are looking to work with someone, they will think of you. It is not easy to make concessions when you need every dollar, but if you make sacrifices when your business permits them, you will often see a much greater return.

The real estate business is filled with constant trends and changes. The best investors are those who will get out a few months too early rather than hang on too late. If you put all your eggs in one basket, you are certainly doomed to fail. Short sales and foreclosures were the rage five years ago, but they have reduced greatly over the years. There are still plenty of foreclosures, but probably not enough to sustain your business. You need to be able to see the trends in the market before they happen and react quickly when things transpire. The more diverse your portfolio and lead generation sources are, the better you can adjust to whatever is going on in the market. You can certainly ride the wave of a hot trend or something that is working for you, but you need to be able to get out as quickly as you got in.

Sometimes the worst thing that can happen to an investor is to have a taste of success. This can cause you to be complacent, lazy and to think that deals will just fall on your lap. To build a strong business you need to constantly network and get yourself out there. When things get slow, people will lean on others they have a relationship with and have worked with in the past. The stronger your network is, the greater chance you have at finding deals and getting through rough patches. This isn’t always easy when you are busy working on deals, but you need to think about the big picture. If you can establish just one new contact every meeting over time, you have a stable of people that know and trust you. The minute you slow down your networking is when you will start to see a dip in your business.

The same can be said for your marketing strategies. Having current deals to work on is great, but when – and if –  they close, you will be left with a dry pipeline. Regardless of what you are doing, you need to have a constant flow of leads coming in. Every lead is an opportunity to work with a new realtor, attorney or mortgage broker that can provide you with further opportunities down to road. Directly getting deals is the goal of networking and marketing, but don’t discount the impact it has on the people in your market. People in the business know who is buying and selling real estate in your area and will remember you in the future. You can truly never have too many incoming leads. You can slow down your marketing efforts if you are busy, but you should never turn it off all together.

Finally, the businesses that are built for the long haul have enough reserves to weather any financial storm. You need to allocate a portion of funds received on every deal to savings so you can brace for dips in your business. The biggest reason that many investors ran into trouble during the mortgage collapse was not a lack of equity, but a lack of reserves. Regardless of what else you have going on, you need to constantly contribute to your rainy day fund. Just when things are going well, a furnace will break or you will be presented with an opportunity to buy if you can close quickly. If you have reserves, you can easily handle what is going on in your business.

To stick around for the long haul, you need to have the right mentality. If you don’t run your business like a business, any success you have can be short lived. If you see yourself investing in real estate ten to twenty years down the road, the decisions you make today can make all the difference.$

[Ed. Note: Need additional income to help support or supplement your real estate business? Ray is offering a complete blueprint to helping you take control of your financial future with a web-based business that you can operate from anywhere in the world – including a coffee shop, your kitchen table, or anywhere around the world where there is Internet access. Discover how you can achieve the American Dream and your financial independence here. You’ve never seen anything like this before.]

Real Estate: How to Best Evaluate Risk vs. Reward

Every decision you make affects your business. Everything from the color you use to paint the living room to what offer you accept makes a huge difference. If you make these decisions based on impulse, you are asking for trouble. Everything you do should focus on risk vs. reward. Is it worth what you are risking for the potential reward you can get? Sometimes your risk will be money, others it will be time. Whatever you are giving up is real and needs to be worth the return for you to move forward. There is nothing wrong with hitting singles on deals, but you need to know what you are risking. There are many areas of real estate to focus on. With each of them, there is an easy way to understand the risk vs. reward.

Rental Properties: Rental properties are a great way to gain long-term wealth. Not every property will be the home run you think it will be. Having a successful rental property requires you to be strong in many different areas. Not only do you need a good property, but you also need to find good tenants for it. All this takes time. Before you consider a rental, you need to ask yourself if you are willing to put the time in. Dealing with tenants before, during and after they move in takes time and patience. You can expect a few false alarm phone calls in the middle of the night. To avoid this, you can hire a property manager, but this will cut into your cash flow. The goal for a rental can either be long term wealth or monthly cash flow. If you have a long term goal, you are risking your money in the hope that you will see a future return. You goal can also be to have monthly cash flow. If you do not want your money tied up for several years, rentals may not be for you. There is the chance at wealth down the road, but for this you will pass up current deals. For the right property the risk is often worth the reward

Flips & Rehabs: Home flipping is currently the most popular form of real estate investing. There are about a dozen shows on TV dedicated to this part of the business. While it may look easy many investors can and do lose money. This often happens when they don’t consider all the risks involved. The most common mistake that rehabbers make is thinking that any work they do add value to the property. If you don’t do the right work you will not get the return you desire. Soon enough you will get to a point that your risk no longer equals your reward. You can still make a profit but to do so you have to put up a large amount of money. You can use this in many different safer ways that can still give you a good return. To rehab a property you need capital to buy and money to rehab. This is often tens of thousands of dollars. After you buy you may not have money for other opportunities that come your way. These can be greater than the project you are working on. Making $10000 may seem like a lot of money but when you are risking $40000 it doesn’t look so great. Even if you know the area you may not be able to sell for the price you think. Every day you own the property without selling your lose chances at other deals. Flipping can offer you quick returns but often takes a large initial investment. If you don’t mind your money invested up for a few months than this approach makes sense.

Wholesale Deals: Wholesale deals are the least risky form of investing. What you may not be giving up with money you give up with time. Wholesaling is process of finding deals and assigning the contract for a fee. The only money you should spend will be for marketing and some due diligence on the property. This may seem risk free but is it worth the reward? Some wholesale deals may take weeks to complete. During this time you can spend several hours putting everything together. In the same time you could have found a rehab or rental deal that would be far more profitable. The risk is not the same but the reward would be much higher. Spending all your time on one deal means you are taking time from somewhere else. Instead of growing your business all your attention is on one deal. You can build a strong wholesale business but it may never reach the heights of a rehab or rental business. The risk will be in line with the rewards.

If you are comfortable with the risk, you should be willing to accept the outcome. It is important to know exactly what you are getting into and giving up with every decision you make. There is nothing wrong with making a small profit on a deal. It becomes a problem when you give up too much to get it. There are many ways to analyze a deal, but risk vs. reward has stood the test of time. You have to know what you are giving up to get something. If you are not comfortable with this, there are other deals you can work on.$

[Ed. Note: Need additional income to help support or supplement your real estate business? Ray is offering a complete blueprint to helping you take control of your financial future with a web-based business that you can operate from anywhere in the world – including a coffee shop, your kitchen table, or anywhere around the world where there is Internet access. Discover how you can achieve the American Dream and your financial independence here. You’ve never seen anything like this before.]